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How to Settle Debt in 3 Steps

Hannah Locklear | August 14, 2024

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

You can settle your debt for good.

Summary: Settling a debt can be made easy with the following steps: respond to pending debt lawsuits, make an offer to start negotiations, and get the settlement terms in writing. SoloSettle can help you with each of these steps and more.

If you have one or more unsecured debts in default, it's normal to feel overwhelmed. However, with a bit of work, savings, and a few phone calls, you may get your creditors to accept a significantly lower amount.

The debt settlement process is simple — the consumer makes an offer, the creditor accepts or counteroffers, the consumer pays once both parties agree on an amount, and the debt is settled. But there are a few other hoops to jump through to avoid any blunders.

To settle a debt, follow these three steps:

  1. Respond to pending debt lawsuits.
  2. Determine how much you can afford, then send an offer.
  3. Get the debt settlement terms in writing.

SoloSettle can help you with all of these three steps and more. Keep reading to explore each step in detail. Don’t like reading? Check out this video instead:

Settle with SoloSettle

Make an Offer

Step 1: Respond to pending debt lawsuits

If you’re being sued for a debt, you should have received court documents notifying you of the case and its details. These are called the Summons and Complaint. Never ignore a debt collection lawsuit, even if you plan to make an offer to settle.

Failing to respond to the case can result in a default judgment which may lead to wage garnishments or property liens.

Each state has a deadline by which you must respond to a debt lawsuit. It can be anywhere between 14-35 days. Often, the court documents will tell you how many days you have to respond, but not always. It’s up to file an Answer before your state’s deadline.

In your Answer, you should respond to each claim and assert your affirmative defenses. Finally, be sure to file the Answer with your local court and send a copy of it to the opposing attorney. Let’s take a closer look at these tips.

Respond to every claim

The Summons and Complaint contain a list (or paragraphs) of the reasons why the creditor is suing you.

Take care to respond to every paragraph. For every complaint, state whether you deny, agree, or deny due to lack of knowledge.

  • Deny - means you want the plaintiff to prove the accusation. Denying everything is a good strategy, forcing your opponent to prove each claim.
  • Admit - means you accept guilt. So admitting to all claims would mean you are guilty, and the judge would rule against you.
  • Deny due to lack of knowledge - means you do not know whether the accusation is true or false because you lack the necessary information.

After answering each claim, you are ready to state your defense.

Assert your affirmative defenses

State the reasons why you are not guilty of the accusations. You only have this chance to assert your affirmative defenses. Once the trial begins, you cannot bring them up.

Choose the affirmative defense that applies in your case. For example:

  • You don't have a contract with the creditor or debt collector.
  • Another court already dismissed the debt.
  • The amount is incorrect.
  • The debt is past the statute of limitations, so they cannot sue you.
  • You already paid the debt.

Make the right defense the right way..

File the Answer with the court and the plaintiff's lawyer

Properly filing the Answer is the most critical step. Even an excellently crafted Answer document will only be useful if it reaches the court in time. Using SoloSuit to file can relieve you of this step if you let us file for you.

If you are filing for yourself:

  • Print two copies of the Answer document.
  • Mail one copy to the court and one to the debt collector or creditor's attorney by certified mail with a return receipt requested.

Not sure of the court's address? Let SoloSuit file for you.

Watch this video if you want to learn more about how to respond to a debt collection lawsuit:

Step 2: Send an offer to start negotiations

Send an initial offer to kick start the negotiation process. You will never know how much a creditor or collector is willing to accept for settlement until you make an offer.

You’re probably wondering, “How much should I offer to settle my debt?”

Your original offer should be less than the maximum you can afford to pay. That way, if the creditor makes a counteroffer, you have room to negotiate. Once you have saved your settlement offer, it is time to contact the creditor to present your proposal.

You should never make an offer that you can’t afford to pay, even if it means waiting until you’ve saved up enough to move forward. Be prepared to pay off your debt as soon as the creditor or debt collector accepts your settlement offer.

Ultimately, there are several ways to negotiate a debt settlement. Let’s go over a few.

The Ackerman Method

The Ackerman Method can help you convincingly negotiate a settlement offer using six basic tips:

  1. Determine a target settlement amount: You should be able to pay this amount as one lump-sum.
  2. Make your first offer at 65% of the target amount: Start off low. This will give you room to negotiate.
  3. Use empathetic “no’s”: When the creditor or debt collector counteroffers, use empathetic “no’s” to show that your initial offer was already a stretch. You can say something like, “How am I supposed to accept that? It’s really embarrassing, but I just don’t think I afford that amount. I understand you want to be paid the full amount, but it’s just not in my budget.”
  4. Up your offer: Since you’ve already set up a target settlement amount, you know you have room to increase the settlement offer. Increase your offer to 85% of target amount, then 95%, then 100%, depending on what the creditor or collector will accept.
  5. Use non-round numbers on each offer: Make an offer of $998.76 instead of $1,000. This suggests to the creditor or collector that you’ve had a thorough look into all your budgets and accounts and determined an exact amount affordable to you.
  6. Offer something nonmonetary: After the final offer, throw in a nonmonetary offer along with the money to show you are really at your limit.

Now, let’s consider an example of how to use the Ackerman Method to settle:

Example: Jonny is being sued by LVNV Funding for $5,000. He can afford to settle the debt by paying off 75% right now, or $3,750. He uses the Ackerman approach to negotiate with LVNV. First, he sets his target amount at $3,750 before he reaches out to the collectors. Next, he makes his first offer at 65% of his target amount, which is $2,437.50. When LVNV Funding replies with a counter offer above his target amount, Johnny empathetically tells LVNV Funding that he understands they want the full amount, but there is just no way he can afford to pay that right now. Then, he increases his offer to 85% of the target amount, or $3,187.50. LVNV Funding doesn’t budge, so he tries 90%, or $3,375. At this point, LVNV Funding accepts.


Determine how much you can afford/how much the collector will accept

Alternatively, you can try a less structured approach than the Ackerman Method to negotiate and determine how much you will offer based on two factors:

  • How much you can pay: Calculate how much money you have left over each month after you pay for the basics: food, shelter, utilities, and transportation. Subtract other costs that must be paid like other non-delinquent debt. Add the difference to any savings you have available to pay off this debt. The sum is the amount you have available to pay off the debt. In other words, use this formula to figure out how much you can pay:

    Amount available to settle = (monthly income – monthly costs) + savings)

  • How much you think the collector will accept: This is a little tricky because debts settle within a broad range of amounts. They can settle for amounts ranging from 1% to over 100% of the total amount of the debt. More frequently, we see them settle for 60% or more.

Let’s look at an example of how to settle using this approach.

Example: Jennifer receives notice that Midland Credit Management is suing her for $6,000. She takes a close look at her finances and decides she can afford to pay 75%, or $4,500 to settle the debt. She does some research into Midland Credit Management and finds out that they often settle for as little as 20-40%. She uses this information to make an offer somewhere in the middle at 50% of the debt, or $3,000. Midland Credit Management accepts and the lawsuit is dismissed.


Pick a price and stick to it

Finally, you can make your initial offer at the best you can afford and stick with the amount. When the creditor or collector comes back with a counteroffer, don’t budge.

Debt collectors use this tactic with people frequently. Usually, it turns into a game of chicken to see who breaks first. If you have the time and persistence it takes to use this method, it could really pay off in the end. Literally.

Here is one last example.

Example: Brian is being sued by his credit card company, Discover, for $4,500. He has enough to pay $3,500 upfront and calls Discover to offer this amount as a final settlement. Discover tries to counter, but Brian sticks to his guns with his original amount. After a few weeks of negotiation attempts, Discover finally agrees to settle for $3,500. Brian’s persistence pays off, and Discover dismisses the case after he sends the settlement amount over.


SoloSettle takes care of the negotiation process.

Step 3: Get the agreement in writing

Having your offer accepted can be exciting. But before you make any payments, the creditor/debt collector must agree to the terms in writing. The creditor should provide you with a written settlement offer, and both you and the creditor should sign the document before you make your settlement payment.

It can be tempting to skip this step in your rush to be done with creditors and debt collectors. However, it is crucial to remember that a settlement agreement is only valid if it is in writing. More than one consumer has made what they believed to be a settlement offer, only to later face harassment from a debt collector or even legal action in an attempt to collect the remainder of the debt, all because the agreement was never recorded.

Once the debt settlement terms are in writing and both parties have signed, you can make the payment.

Remember, there is more to debt settlement than just paying less than the amount owed. First, respond to any debt collection lawsuits, make an offer you can afford, and get everything in writing. SoloSettle makes the process simple, and it works even after you’ve been sued.

Read more: How to make a Debt Settlement Agreement.

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit. (We can help you in all 50 states.)

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